McGill Residence System $79 Million in Debt
12 Nov, 2012
While only a small fraction of McGill undergraduates live in on-campus residences, the residences are a vital part of the lives of those who do. Which residence a student lives in can determine friendships and activities, and can even help define identities.
Due to the great influence McGill residences have on students’ lives, it is important to analyze their cost and future outlook. Why care about the cost of living on campus? For many students, room and board accounts for much more annual costs than tuition itself, and the future does not point to a direction in which costs will stay the same.
McGill Residences and Student Housing is a separate self-financed unit from the University itself. It owes $79 million in outstanding loans to the University, and that number will not be getting smaller anytime soon. Seventy-nine million is close to three times the $27 million dollar annual budget of McGill residences. Buildings aren’t cheap, obviously, but what can possibly amount to causing a debt of such magnitude?
In the fiscal year 2012, which ended on April 30th, McGill Residences and Student Housing operated at a loss of $5 million. Revenues amounted to $27 million; close to 97% of revenues were due to student fees, and the rest balanced between summer business and endowments. Major renovations and mortgage repayments were responsible for most of the expenditures.
The $5 million loss is related to the first year of the four year plan for deferred maintenance, whereby $30 million is being borrowed over the course of the plan. “To sum up, the five million dollar loss was planned, not an aberration,” notes Michael Porritt, Executive Director of Residences and Student Housing.
While only three percent of revenue seems like an afterthought, summer business is a vital part of the effort to keep costs from increasing too heavily. To offset the bloated expenditures stemming from renovations and expansion, summer business will need to inhabit a bigger role in revenue collection in the future. “Summer business and other non-rent revenue is key to reduce our debt, but we are also constantly looking at ways to reduce our operating costs,” finds Kin Mow, Associate Director of Business Operations for McGill Residences and Student Housing.
The significant debt is likely to only increase in the near future. The average residence building at McGill is 60 to 70 years old, and many need constant reparations. For example, Douglas Hall will be closed next year for renovations that will cost $15 million. The fiscal year 2013 will see loan and mortgage payments increase from $6.6 million to $9.3 million due only to La Citadelle, the newest residence on campus.
In fact, the total amount owed to the university is projected to be $110-120 million by the end of next year because of the cost of La Citadelle, a project that ended up costing $17 million more than originally planned. According to Mow, McGill residences “will be debt-free by 2053.” This prediction follows the assumption that all mortgage payments will be fulfilled by that time. However, if costs can be reduced and summer business expanded, the mortgage payback time can be significantly reduced.
La Citadelle follows the recent trend established by the newest McGill residences in that converted hotels not originally built for the purpose of housing students have become the new norm. The move to hotel-style residences is supported by the city of Montreal, whose bureaucracy views the hotel market as too saturated. It is becoming very unlikely that a new traditional residence building will be added to the list of residences anytime soon. Permits take ages to be approved, which also hinders progress.
The future isn’t so dim though, as there are significant plans to reduce operating costs. Mow emphasizes energy cost reduction, as he states that many of the buildings will be renovated to house more energy efficient windows and newer HVAC systems. In line with summer business, Mow says that there are plans to “hire a marketing professional to increase and improve summer business,” implement “new summer programs which will better utilize our Residence facilities,” and coordinate with the city of Montreal to “be designated as one of the official hotels for various Montreal summer events.”
It is obvious that McGill residences are expensive and require huge fiscal commitments. While being indebted is not necessarily the worst scenario, too much leverage can quickly become a problem. Plans for the future are being crafted, as it will quickly become necessary to slow down spending and cut down costs while simultaneously continuing the renovation processes.